Charlotte's Web Holdings Reports 2019 Q1 Earnings

Hugo Gray1 Jun 7min read

Q1 revenue increases 66% YoY to US$21.7 million

Adjusted EBITDA of $4.5 million and US$0.03 EPS

BOULDER, CO, May 28, 2019 /CNW/ – Charlotte's Web Holdings, Inc. ("Charlotte's Web" or the "Company") (CSE:CWEB, OTCQX:CWBHF), the market share leader in whole-plant hemp extract products, today reported financial results for the first quarter ended March 31, 2019. All amounts are expressed in United States dollars. Certain metrics, including those expressed on an adjusted basis, are non-IFRS measures.

Highlights of First Quarter 2019 Results

Organic consolidated YoY revenue growth of 66% to $21.7 million

Gross profit of $15.9 million, 73% of consolidated revenue

Adjusted EBITDA of $4.5 million, 21% of consolidated revenue

Net income of $2.3 million, 11% of consolidated revenue

51% of revenue from retail outlets

EPS basic of $0.03 per share; EPS diluted of $0.02 per share

Business Highlights

Executive leadership expansion with CEO, COO and CGO additions

First orders shipped to largest food and drug retailers in the USA

Retail doors increased more than 60% from 2018 year-end to over 6,000 at May 8, 2019

On May 15th, 2019 Charlotte's Web appointed Deanie Elsner as the Company's new Chief Executive Officer. Ms. Elsner comes to Charlotte's Web from Fortune 500 company Kellogg's where she was President of the $3B dollar U.S. Snacks division – the largest business unit in the Kellogg Global portfolio and prior to that served more than 20 years in various leadership roles at the Kraft Foods Company including Chief Marketing Officer.

"Charlotte's Web has established itself as the market leader in sales, and more importantly as a trusted brand with an impeccable reputation," said Ms. Elsner. "As someone with an extensive career in the CPG industry leading global brands, I see a tremendous opportunity to further influence, shape and grow the CBD category while turning Charlotte's Web into a household product name that consumers can rely on around the world. My priority is to raise the Company's level of operational effectiveness and accelerate growth opportunities acting with urgency and decisiveness."

Q1-2019 Business Review

The first quarter concluded with significant retail expansion for Charlotte's Web as shipments commenced to three national brand supermarket/grocery and drugstore retailers in select states. Subsequent to the quarter, shipments commenced to a fourth national retailer and Charlotte's Web has surpassed 6,000 retail locations now receiving shipments of the Company's leading hemp CBD products. More than 2,300 new retail doors were added since the start of the year – more than all of 2018 – significantly expanding the Company's physical brick and mortar retail reach.

As of May 28, 2019, Charlotte's Web is shipping product to four national retailer locations covering 18 states combined. The Company expects additional states and stores to be added by these retailers throughout 2019. A major grocery retailer is carrying all categories of the Company's product portfolio including oils, capsules and topicals, while the remaining national retailers have begun their Charlotte's Web product introduction with topical products only.

Charlotte's Web recently launched a line of pet products including functionally focused chews with synergistic ingredients to target specific health functions including: Calming, Hips & Joints and Cognition. The CBD Pet market is forecast to grow rapidly at a Compound Annual Growth Rate (CAGR) of 151% between 2018-2022 to a market size of US$1.16B according to market research firm, Brightfield Group.

The pet line was developed in adherence with the strict quality standards of the National Animal Supplement Council ("NASC"). NASC is at the forefront to safely regulate the pet market for animal supplements, offering a quality seal audit program and keeping in close contact with the FDA. Charlotte's Web is one of only a few hemp companies to be a member of the NASC.

To support the growing product portfolio and retailer demand, Charlotte's Web is more than doubling the number of acres planted for 2019 to over 700 acres. The Company planted 300 acres of hemp in 2018 and harvested 675,000 pounds of raw hemp compared to 63,000 pounds in 2017.

"With the passing of the 2018 Farm Bill, we experienced a rapid increase in the major retail category as hemp became federally legal," said Deanie Elsner, President and Chief Executive Officer. "This momentum is continuing as consumer awareness and retailer interest surrounding hemp and CBD increases. We believe we'll continue to see expansion in this area with additional retailers coming onboard and we expect continued roll-out to new states from existing retail customers throughout the year. Some retailers may wait for further clarity from the Food and Drug Administration (FDA) before including ingestible products, while others have been moving forward and expanding the number of stores that carry Charlotte's Web products."

The FDA will hold a public hearing on regulating hemp-derived CBD on May 31, 2019 to explore pathways for dietary supplements and/or conventional foods containing CBD and how it might regulate manufacturing, marketing and labeling. Charlotte's Web has significant interest in effective industry regulation and is coordinating its efforts through its membership with the U.S. Hemp Roundtable to submit verbal and written comments to the FDA.

Charlotte's Web also supports self-regulation of the hemp industry through its membership in the U.S. Hemp Authority™. The U.S. Hemp Authority Certification Program is a new initiative to provide high standards, best practices and self-regulation for the hemp industry. The certification requires meeting or exceeding stringent self-regulatory standards for Current Good Manufacturing Practices (cGMP) and passing an annual third-party audit. The certification is designed to increase consumer and law enforcement confidence in hemp products being sold in the market today by designating them as safe and legal. Charlotte's Web has received certification from the U.S. Hemp Authority.

First quarter revenue increased 66% year-over-year to $21.7 million as broader consumer awareness of CBD based products continues to drive increased usage in all product categories. Human nutrition products, topicals and animal nutrition products growing by 67%, 455% and 79%, respectively. Retail channel growth is increasing as the large mass retailers begin carrying Charlotte's Web products. During the first quarter 2019, retail channel revenue accounted for approximately 51% of total revenue compared to 47% for the same period in the prior year.Gross profit totaled $15.9 million for Q1-2019, compared to $10.5 million for the first quarter of 2018, a year-over-year increase of 51.4%. As a percent of total revenue, gross profit in Q1-2019 was 73.4%, compared to 80.5% for the same period in 2018. Gross profit prior to biological asset adjustments as a percentage of revenue for Q1-2019 and 2018 was 72.8% and 79.0%, respectively.

Adjusted EBITDA for the quarter was $4.5 million or 21% of consolidated revenue compared to $4.6 million and 35% of consolidated revenue for the same period in the previous year. The Adjusted EBITDA ratio during the first quarter reflects continued investment in infrastructure and personnel as the Company builds its internal capabilities to support expected revenue growth for the remainder of 2019 and beyond.

"We are forecasting revenue to grow at a faster pace than operating expenses, particularly in the back half of the year," stated Rich Mohr, Chief Financial Officer of Charlotte's Web. "This supports our adjusted EBITDA guidance in the 30%-35% range on an annualized basis, in line with our historical norms. Our sales volumes continue to increase on a quarterly basis and we're expecting continued top-line growth during the second quarter and during the last half of the year. We reiterate our revenue guidance for 2019 of between $120 million and $170 million."

Balance Sheet and Cash Flow

The Company used $3.7 million of cash in operations during Q1-2019 compared to $4.1 million of cash provided from operations during Q1-2018. The reduction in cash flows from operations primarily reflects the investment in inventory associated with the growth required to supply new retail outlets and the planting of the 2019 hemp crop which will more than double in size over the previous year. The Company's cash at March 31, 2019 was $69.1 million compared to $73.4 million on December 31, 2018. Working capital at March 31, 2019 was $93.9 million compared to $93.8 million at December 31, 2018.

About Charlotte's Web Holdings, Inc.

Charlotte's Web Holdings, Inc. is the market leader in the production and distribution of innovative hemp-based cannabidiol ("CBD") wellness products. Founded by the Stanley Brothers, the Company's premium quality products start with proprietary hemp genetics that are responsibly manufactured into whole-plant hemp extracts naturally containing a full spectrum of phytocannabinoids, including CBD, terpenes, flavonoids and other beneficial hemp compounds. Industrial hemp products are non-intoxicating. Charlotte's Web product categories include CBD Oil tinctures (liquid products), CBD capsules, CBD topicals, as well as CBD pet products. Charlotte's Web hemp-based whole plant extracts are sold through select distributors, brick and mortar retailers, and online through the Company's website at www.CharlottesWeb.com. The rate the Company pays for agricultural products reflects a fair and sustainable rate driving higher quality yield, encouraging good farming practices, and supporting U.S. farming communities.

Charlotte's Web is a socially conscious company and is committed to using business as a force for good and a catalyst for innovation. The Company weighs sound business decisions with consideration for how its efforts affect its employees, customers, the environment, and the communities where its employees live and where it does business, while maximizing profits and strengthening its brands. The Company's management believes that socially oriented actions have a positive impact on the Company, its employees and its shareholders. Charlotte's Web donates a portion of its pre-tax earnings to charitable organizations.

Shares of Charlotte's Web trade on the Canadian Securities Exchange under the symbol "CWEB" and in the United States on the OTCQX under the symbol "CWBHF". Charlotte's Web has 39,772,154 Common Shares outstanding and 138,332.38 Proportionate Voting Shares convertible at 400:1, for an effective equivalent of 95,105,106 Common Shares outstanding.

Forward-Looking Information

This press release may contain forward-looking information within the meaning of applicable securities legislation. In the interest of providing the shareholders and potential investors of Charlotte's Web Holdings, Inc. with information about the Company and its subsidiaries, including management's assessment of the Company and its subsidiaries' future plans and operations, certain information provided in this press release constitutes forward-looking statements or information (collectively, "forward-looking statements"). Forward-looking statements are typically identified by words such as "may", "will", "should", "could", "anticipate", "expect", "project", "estimate", "forecast", "plan", "intend", "target", "believe" and similar words suggesting future outcomes or statements regarding an outlook. Although these forward-looking statements are based on assumptions the Company considers to be reasonable based on the information available on the date such statements are made, such statements are not guarantees of future performance and readers are cautioned against placing undue reliance on forward-looking statements. By their nature, these statements involve a variety of assumptions, known and unknown risks and uncertainties, and other factors which may cause actual results, levels of activity, and achievements to differ materially from those expressed or implied by such statements. The forward-looking information contained in this press release is based on certain assumptions and analysis by management of the Company in light of its experience and perception of historical trends, current conditions and expected future development and other factors that it believes are appropriate.

The Company's forward-looking statements are subject to risks and uncertainties pertaining to, among other things, revenue fluctuations, nature of government regulations, economic conditions, loss of key customers, retention and availability of executive talent, competing products, common share price volatility, loss of proprietary information, product acceptance, internet and system infrastructure functionality, information technology security, cash available to fund operations, availability of capital and, international and political considerations, including but not limited to those risks and uncertainties discussed under the heading "Risk Factors" in the MD&A and the Company's other filings with securities regulators. The impact of any one risk, uncertainty, or factor on a particular forward-looking statement is not determinable with certainty as these are interdependent, and the Company's future course of action depends on Management's assessment of all information available at the relevant time. Except to the extent required by law, the Company assumes no obligation to publicly update or revise any forward-looking statements made in this press release, whether as a result of new information, future events, or otherwise. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on the Company's behalf, are expressly qualified in their entirety by these cautionary statements.

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